Millionaire Interview 177

Here’s our latest interview with a millionaire as we seek to learn from those who have grown their wealth to high heights.

If you’d like to be considered for an interview, drop me a note and we can chat about specifics.

This interview is a great example of how two industrious people made the most out of what many people would consider two hard-to-grow-income career choices (police officer and teacher). It’s pretty impressive IMO.

My questions are in bold italics and his responses follow in black.

Let’s get started…

OVERVIEW

How old are you (and spouse if applicable, plus how long you’ve been married)?

I am 49 and my wife is 45. We’ve been married for 23 years.

My wife is a natural born saver and I couldn’t have accomplished what we did, if she wasn’t frugal.

Do you have kids/family (if so, how old are they)?

We have three kids, ages 17, 15 and 13.

What area of the country do you live in (and urban or rural)?

We live in a suburb in the midwest.

What is your current net worth?

$2,210,430.90 in investments.

$2,510,430.90 including our paid off home

What are the main assets that make up your net worth (stocks, real estate, business, home, retirement accounts, etc.) and any debt that offsets part of these?

Debts: None

Assets

• Home: $300,000.00 (No mortgage)
• His Roth Ira: $205,701.31
• Her Roth Ira: $ 196,692.41
• Her 403(b): $ 577,351.92
• His 457: $369,501.46
• Her 457: $92,459.57
• Taxable Brokerage Account: $754,536.59
• Education IRA: $14,187.64

EARN

What is your job?

I am a police officer and my wife is a teacher.

I have been serving for 26 years and my wife has been educating for 21 years.

What is your annual income?

In 2019 we earned $200,000 from our jobs and another $12,000 in dividends from our taxable portfolio.

In 2019 I earned $108,000 with overtime, my base pay is $98,000.

In 2019 my wife earned $92,000.

Tell us about your income performance over time. What was the starting salary of your first job, how did it grow from there (and what you did to make it grow), and where are you now?

When my wife and I married in 1997, she earned $30,000 and I earned $35,000.

She went back to school to earn her Master Degree and went 60 hours beyond her Masters degree to maximize her pay.

Her contract allows for pay lane changes from a basic Bachelor’s degree to a PhD. It didn’t make sense financially to pursue the PhD, so she stopped one pay lane short before the PhD and has been compensated at a Masters +60 hours since the late 90’s. This was a great move on her part to maximize her pay early on in her career and not wait ten years.

In addition to the advanced degree that she sought to maximize her pay, we both receive contractual raises every year that average 3%-5%. And I work a lot of overtime details. In addition, for the first ten years, I worked security side gigs, and at one point I was holding three part-time side jobs. I figured I could take advantage of this before we had kids. And it helped boost our savings and brought in additional money to remodel our home.

What tips do you have for others who want to grow their career-related income?

Possess knowledge and expertise by taking advantage of any employer paid training and education that could boost your pay and make you a valuable employee.

Know how to do your job well to make your boss job and life easier. I believe if you do your job exceedingly well and are likeable and reliable, your pay and status within your place of employment will trend higher and not stagnate.

For example, in our department, truck officers bring in a lot of revenue from overweight fines and as a result are allowed to work unlimited amounts of overtime for truck enforcement. Officers who attend the 40 hour class and become certified to enforce truck overweight violations, can earn additional overtime.

By working an additional 16 hours per week (2 shifts), a truck officer can earn an additional $60,000 in overtime using my hourly overtime rate of $72.48/hr.

What’s your work-life balance look like?

My wife is off every summer, holidays, weekends and I finally work the dayshift.

I receive five weeks of vacations and three personal days per year. We feel like we have plenty of time off to enjoy ourselves outside of work.

We finally feel like a “normal” family because I no longer have to work afternoons or midnights unless I sign up for overtime. I get off work at 3 pm and I’m usually home by 3:15 getting dinner ready and seeing the kids come home from school.

My days off rotate so when my days off occur during the week, I can get a lot of the running around done with a lot less traffic and crowds to deal with.

Working the day shift also allows us to attend family gatherings, parties and holiday events as a family.

Do you have any sources of income besides your career? If so, can you list them, give us a feel for how much you earn with each, and offer some insight into how you developed them?

I earn additional money by working overtime. This is usually created by manpower shortages from an officer being on vacation or calling in sick, hiring officers back for special events, attending court, firearms training or any other training if it falls on my day off and late calls that require me to stay late.

I usually earn an additional 10% of my base pay in overtime.

SAVE

What is your annual spending?

I do not track this very closely because if I wasn’t able to save the maximum we invest in our retirement accounts, then I would look at our spending to determine why our savings is falling short. This hasn’t been a problem because we’ve grown the gap between what we spend and what we earn.

We charge everything to our Visa card and pay if off every month. The amounts vary from month to month, between $2,500 on the low end to $5,000 on the high end when we’re vacationing in the summer. The norm is around $3,000 to $3,500 per month and this includes groceries, utilities, ordering out, etc.

What are the main categories (expenses) this spending breaks into?

Our main expenses are groceries and household items.

Do you have a budget? If so, how do you implement it?

Not one that we track, and we reverse engineer our budget.

We pay ourselves first by maxing out every available retirement account then we pay our bills. We then take the surplus after we pay our bills and invest it in a taxable account.

A portion of this savings goes into a money market account so that we can use this money to live off while we front load the 403(b), 457’s and Ira’s.

We’ve been doing this for many, many years. And it works for us.

What percentage of your gross income do you save and how has that changed over time?

I started tracking the percentage of our gross since 2002 and here are the numbers:

• 2002 – 46%
• 2003 – 38%
• 2004 – 46%
• 2005 – 47%
• 2006 – 48%
• 2007 – 41%
• 2008 – 40%
• 2009 – 48%
• 2010 – 45%
• 2011 – 50%
• 2012 – 49%
• 2013 – 47%
• 2014 – 25%
• 2015 – 35%
• 2016 – 29%
• 2017 – 57%
• 2018 – 51%
• 2019 – 48%

What is your favorite thing to spend money on/your secret splurge?

On vacations and occasionally eating at nice restaurants.

In the early years we took relatively inexpensive vacations to visit family in the southeast or took the kids on short trips to places like Wisconsin Dells when they were little.

Now, that they are older and we are set financially, we enjoy more expensive vacations at all inclusive resorts. We went to Turks and Caicos last year and can still recall the light blue warm water that we swam in.

We enjoy dining at our favorite restaurants on occasion and it’s nice not worrying about the bill. We enjoy cooking at home but when we want to go out we don’t deprive ourselves.

INVEST

What is your investment philosophy/plan?

Invest early and often and for the LONG TERM in a total market low cost index fund. I use Vanguard Total Stock Market Index (VTSAX).

Do not trade on emotion, have an asset allocation and stick with it, NO MATTER WHAT.

One of the best ways to become wealthy is to be an owner. Since my wife and I do not actually own our own business, I determined the next best thing is to do so through a total market index.

What has been your best investment?

The Vanguard Total Stock Market Index.

What has been your worst investment?

In the late 90’s I bought a bunch of tech stocks. I started with a portfolio of $28k and sold them taking a $17k loss. I vowed to never repeat that mistake of buying individual stock again.

What’s been your overall return?

I would say the return of VTSAX since I am and have been heavily invested in that index fund since the 90’s. It’s my core holding. I currently hold almost 100% of my portfolio in VTSAX ($8,000 is in a money market fund).

How often do you monitor/review your portfolio?

I usually peek at least once a day in the evening but not always.

NET WORTH

How did you accumulate your net worth?

We invest early and often via payroll deductions.

We front load our payroll contributions and save a high percentage of our income and avoid, minimize and eradicate the debt we had consisting of our mortgage and her student loans.

By being debt free and avoiding the typical monthly recurring bills such as car payments we’ve widened the gap between what we earn and what we save.

Once you widen that gap, like we did, we invested in a low cost total market index.

Once the money was invested, we NEVER touched it.

Once the money was invested, I would imagine how that contribution and subsequent contributions would yield more money and that money would yield more money and so on, like an army of soldiers that worked day and night, multiplying without taking a sick day or a vacation, all while we slept.

It’s about realizing that materialistic things will not make you happy in the long term and by not finding fulfillment in spending on those items, you can save aggressively and buy your freedom. Financial Independence is the most important thing money can buy.

My wife received a $17,000 inheritance from her grandmother when she passed and my parents gifted me $20,000. That was all the handouts we received.

Once you have the desire to be financially independent or have a goal to be a millionaire, you need to start doing what others are not willing to do.

A lot of people want to live for today and can’t resist the urge to splurge on the latest iPhone, cars and eating out almost on a daily basis two or three times per day. We are bombarded with marketing from the day we are born and led to believe we’ll lead happier lives if we own X, Y or Z and it’s a lie.

Contentment comes from being happy with what you have. Not from what you want, because that will be short-lived.

What would you say is your greatest strength in the ESI wealth-building model (Earn, Save or Invest) and why would you say it’s tops?

Save.

Although all three are important, savings is my greatest strength because it has accelerated my road to financial independence. If we would’ve took the traditional advice of save 10% of what you earn and spent the rest, we’d only have a fraction of what we’ve accumulated. And probably a lot of useless stuff!

What road bumps did you face along the way to becoming a millionaire and how did you handle them?

I think in the beginning it can be discouraging. You save year in and year out, and along comes a bear market, slashes your portfolio by a third and you feel like you’re not making any progress.

With time comes the wisdom to know that those are normal events and perhaps buying opportunities if you have additional monies to invest.

Despite feeling like we we’re spinning our wheels at times, we continued to invest and didn’t change course. And today we are sitting with an amount of money that has brought us a lot of peace of mind and the freedom of knowing we will be okay financially.

What are you currently doing to maintain/grow your net worth?

The same as what we have been doing.

We aim to save at least 35% of our gross in VTSAX within all our taxable and retirement accounts and avoid consumer debt.

Do you have a target net worth you are trying to attain?

I don’t really have a number but more of a strategy.

We are fortunate to have generous pensions when we retire. Since our pensions will cover our living expenses in retirement, I am basically investing our portfolio for the future of our very young children and will keep it 100% VTSAX.

How old were you when you made your first million and have you had any significant behavior shifts since then?

I was 43 when I crossed the first million and 49 when we crossed the second million. And it was pretty funny when we did, we relished in the amount while staring at the screen for several minutes and then life went on like every other day. We didn’t feel the need to go celebrate or buy anything and that’s because we are already content.

The first million was exciting and felt surreal. The second wasn’t as exciting but still felt like another huge accomplishment in that it just further solidifies our financial future and that of those we can potentially help.

Throughout this journey we were always content with what we had and never felt deprived. This mindset has served us well. We realized early on that money buys comfort and peace of mind. It doesn’t buy happiness.

We could easily upgrade our house or our cars, but we just don’t feel the need or want to because those upgrades will not make us happy in the long term.

What money mistakes have you made along the way that others can learn from?

I should’ve invested in our joint index fund within our taxable account and her Roth 403b/457 in the beginning when our earnings were low. Instead I contributed to the traditional accounts and have amassed about 1.1M in these accounts.

If you plan on being in the same or a higher bracket in retirement, it would make more sense to invest in Roth Accounts when you are not in your peak earning years. And then switch to the traditional accounts when your income peaks.

We now find ourselves with pensions that will put us in the 22% bracket and RMD’s from these accounts that could put us in the next bracket.

Do not invest in individual stocks and if you feel the urge, limit it to say 3% of your overall portfolio.

Invest the bulk of your money between a Total Stock Market Index Fund and a Total Bond Market Index Fund, according to your asset allocation based on your need and willingness to take risk.

Be mindful of the fees that you are paying. In the early years when I was a newbie to investing, we invested in a high cost 403(b) annuity product but thankfully changed course after six months and went with Vanguard.

Don’t keep more money than you need in an emergency fund because over the long term there will be an opportunity cost to money that is sitting idly in a low interest account that could’ve been invested differently.

Stick to your asset allocation no matter what. When I thought that stocks peaked, around 2016, I went from 100% VTSAX to 20%. And 80% in a total bond index fund. I allowed my emotions to guide my asset allocation and quickly realized I had made a mistake for two reasons:

• Pensions will cover our living expenses and thus we could continue having this money invested aggressively
• This money will most likely benefit our kids and thus I invest according to their time frame not mine.

I’m not sure how much this error cost me in gains, but the takeaway is to stick your allocation and know why your investing.

What advice do you have for ESI Money readers on how to become wealthy?

If you go to college seek a major that will yield a high paying job.

If college isn’t in the cards, then seek a job with good income and benefits, such as civil service ones working for the federal government or a municipality. Those usually come with great benefits like insurance and pensions.

Other well paying occupations could be found in the trades. Jobs like electricians, plumbers and mechanics. These usually pay well and could even give you the opportunity to start your own business and make you wealthy.

Once you have earnings, then you must save at least 25% of your gross income and more if circumstances allow.

Invest this money aggressively in a total market index fund and don’t get discouraged. The journey you’re on to building wealth is not a sprint but a marathon.
You must from day one save a portion of your pay and pay yourself first. Always treat yourself like a bill that must be paid.

Avoid consumer debt and spend your money intentionally.

Keep a healthy gap between what you earn and what you spend.

Do not keep up with the Joneses and do not compare yourself to others, be in competition only with yourself and strive to better yourself through hard work.

When I observed acquaintances who were better off than I, at least through appearances, I became frustrated at how slowly my wealth was coming along and this made me consider doing what they were doing in order to make more money.

They owned various businesses. Car washes, fast food and apartment buildings.

What I didn’t fully appreciate then that I realize now, is that those are all fraught with risks that they overcame while others did not. I was looking at those that succeeded and not realizing how many went before them that failed. I thought I could just buy a business like theirs and replicate their success.

Know your limitations and excel in what you know. As comedian Kevin Hart says in one of his standups, “stay in your financial lane”.

Educate yourself on the tax code to learn how to minimize taxes.

Keep investing simple with index funds and watch out for the fees you pay. Unlike other areas in life, where you usually get what you pay for, this doesn’t hold true in investing and it’s the opposite. More fees do not get you a better mutual fund or performance. More fees usually means less money in your pocket.

Keep reading. Whether it’s financial blogs or books, continue to learn.

Find a spouse if you can with a similar financial mindset, and most importantly work on your relationship to stay married. Divorce is expensive and it’s financial ruin for many.

The stock market is a wealth generating machine but many don’t achieve said wealth because of their very own behavior. The person that is often keeping you from becoming rich is in the mirror.

Adopt an asset allocation and stick with it, no matter what, you need to stay the course through the good times and the bad. If you allow emotions to become part of the process you’ll find yourself buying high and selling low or sitting on the sidelines with cash wondering when to invest. Remember, the right time to invest is when you have the money according to your asset allocation which will be based on your need and willingness to take risk.

Be disciplined and do not try to time the market. Some investors try to keep cash referred to as “dry powder” to invest when the market tanks but it seldom works. When the market does tank, you won’t invest because you’ll imagine tomorrow might bring another dip. You’ll repeat this process until the market begins to recover and then find yourself on the sidelines holding cash as the market makes new highs.

Have a millionaire mindset. Most middle class/working class people are constantly buying liabilities keeping them from amassing wealth. Things which drain their bank accounts every month car payments and boat payments. Think like a millionaire and aim to buy assets. Things that will appreciate in value, might generate income and boost your net worth, not subtract from it.

Constantly look to keep your capital working for you, optimize every dollar. The easiest way I have found to do this is by buying a Total Market Index Fund. Like Jim Collins states in his book, The Simple Path to Wealth, by owning the companies within this index, you’ll have everyone from the janitor to the CEO working to make you richer.

FUTURE

What are your plans for the future regarding lifestyle?

I could use my savings to retire early but I don’t plan on doing so. I have paid for medical that I can receive if I stay on the force till 55. It’s hard to pass up with skyrocketing medical premiums.

I turn 50 in May of this year and I will be eligible to collect my pension of approximately $5,400 per month. Or if I wait till 55 to retire, my pension would increase to $7,000 per month with annual 3% cola’s increases and paid for medical, vision and dental for myself and my family.

Our plan is for me to work till 55 to secure the paid for medical and then we both can retire without having to worry about the outrageous medical premiums and live off of my pension.

And when my wife turns 55, we’ll also have her pension paying us an additional $4,000 per month.

By retiring at 55, ours kids will be done with school and we’ll no longer have any more tuition bills to pay. We want to pay for their education so they aren’t sacked with debt upon graduation.

What are your retirement plans?

We would like to travel more and take more vacations.

Are there any issues in retirement that concern you? If so, how are you planning to address them?

I believe the biggest issues many people face in retirement are money and paying for healthcare premiums.

And we are blessed to have both covered.

MISCELLANEOUS

How did you learn about finances and at what age did it “click”?

I began learning when I was in my early twenties. I realized that if I wanted more than just my pension to live off of and not have to work side jobs after I retired, I needed to learn how to invest and grow my savings.

For me it clicked in two ways.

• My father always urged me to go into a business, he always told me that rich people don’t work for others, they work for themselves. He wanted me to have a better life than he did and to not have to struggle because of money. When that didn’t happen, and I became a police officer, I felt like I let him down and needed to make him proud. So I began reading and learning how to invest to become wealthy.
• I observed many of my co-workers, and some were and still are very close friends of mine, struggle with money. It was never enough no matter how much overtime or side jobs they worked. Yet, many of them took vacations, drove nicer cars than I and ate out everyday. They appeared to have a spending problem, and were just poor stewards of their money. They lacked the discipline and education to put themselves on the path to prosperity. And when we had the opportunity to invest in our 457, I was able to max it out from day one, and they could only contribute $50 per check or none at all. I took notice of how they struggled and I knew I never wanted to live like that. I made investing a priority and treated our contributions to all of our accounts like a MANDATORY BILL that had to be paid. And whatever money remained was what we had to live off. And it was enough.

I began reading as many books as I could and listened to Money Talk on the weekends with Bob Brinker.

I recall the various callers who called in with questions on their multi-million dollar portfolio’s and it fascinated me how someone could have saved that much money. What amazed me was the power of compound interest and how small amounts of money invested over time turned into substantial sums of money. And since small amounts of money is all we had, it resonated with me.

Who inspired you to excel in life? Who are your heroes?

My parents. They immigrated from Europe with nothing and managed to raise three kids, and provide us with a comfortable life.

They worked hard their entire life and managed to save a nice nest egg that with my help later in life, earned them millionaire status when I moved their assets to Vanguard.

Do you have any favorite money books you like/recommend? If so, can you share with us your top three and why you like them?

• JL Collins – The Simple Path to Wealth is a must read in my opinion and I plan on buying a copy for each of my children.
• Jonathan Clements – How to Think About Money and 25 Myths You’ve Got to Avoid If You Want to Manage Your Money Right.
• William Bernstein – If You Can.

Do you give to charity? Why or why not? If you do, what percent of time/money do you give?

We volunteered at our church for three months when they host the homeless shelter.

We usually work every other weekend to prepare breakfast and help in handing out linen and toiletries.

And throughout the year, I enjoy giving directly to people. For example, when we go downtown for dinner, we often see homeless people on the street and I will give them money for a meal. They are so appreciative and I feel good seeing their smile and knowing the money is their hands.

Although it’s not exactly charity, we give generously to our nieces and nephews for birthdays, Christmas and graduations, knowing it could help them with school.

I don’t mind helping out as long as it is a worthy cause and the money actually goes to those it’s intended to help.

Do you plan to leave an inheritance for your heirs (how do you plan to distribute your wealth at your death)? What are your reasons behind this plan?

We do. I have a revocable trust set up to distribute our money to our three children in three installments in hopes that if they squander the first installment, they’ll be wiser when they receive the second and third one.

However, this may change. I think it would be more enjoyable to give our children gifts/help when needed while we are alive.

We are doing our best to educate them so that they know how to handle money in order to become financially independent.